Conditions are constantly changing to make us think that the home loan we have is the worst one in the world, and we should be looking at a different loan.

This is not a simple decision, since there are many factors that dictate the cost of this decision.

How you time your new loan can make a big difference, since there are often short periods in the market where interest rates fall briefly, and you can use this to your advantage.

The main point, however, is one of total costs of refinancing should not be greater than the total savings of refinancing.

There may also be an advantage of shifting from a variable to a fixed rate loan if you ever have the opportunity, avoiding those annoying adjusting rate changes.

Another good reason to consider re-financing is if your credit score has improved and you would be given better interest rates and terms at this time.

A shift in the economy may have meant that interest rates in general have gone down, and you can take advantage of these new lower rates by renegotiating your mortgage.

Sometimes, you may not have a choice in the issue, and you have to arrange a new mortgage because your original loan was a balloon mortgage that has now become due. In this case, you should take advantage of any of the above conditions and use them to your own benefit.

An improved credit situation should automatically qualify you for more advantageous rates and even a longer maturity. If you have become tired of refinancing every five years, this will be welcome.

If you have improved your credit situation, you may save further by re-financing and renegotiating a loan that does not force you to have mortgage premium insurance.

The main condition to examine, after looking at all of the reasons you may want to refinance, is how much it is going to cost to refinance. You should be able to obtain an exact accounting of the closing costs, and then compare that to the conditions on your current mortgage.

If the total savings on your current loan do not equal or exceed the closing costs, the re-financing deal is not worth pursuing. And you may want to reconsider if it barely covers the cost, since you are going to be putting a lot of time and energy into the re-mortgage.

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Of all of the matters you will have to understand about your new home loan, one of the most confusing may be points. Don’t get origination points (to pay to get the loan) mixed up with discount points (to lower the rate on the loan).

They are called “discount” points, since they reduce the interest rate on the loan. Your interest rate is determined by many factors, the most important of which is your credit rating. But the interest rate is paid over the entire life of the mortgage, and so a higher rate can increase the cost of the loan significantly.

Preferred borrowers, with perfect credit histories, pay a rate known as “par”, the rate the bank expects to make on a mortgage with low risk. Everyone else will get a rate based on the credit rating. If you can lower this rate, which lasts over the life of the mortgage, is it worthwhile to do so by paying points?

In some cases, especially in a strong buyers market, the seller might be convinced to pay these points so that the buyer saves money over the long run on his mortgage, making the home a more attractive purchase.

For example, if you are borrowing $100,000 for your home and you can obtain a mortgage rate of 6% without points, how much could you save if you paid points?

Let’s use an interest rate of 6% on a thirty year mortgage that can be reduced to 5.5% if points are paid; how do we know if this is worthwhile?

Any loan calculator one can find on the net will calculate your payments. Total interest at 6% is $115,838.19; total payments are $215,838.19; mortgage payments will be $599.55.

If you pay $2,000 to lower the rate to 5.5%, you have to compare how much you will save, since your monthly mortgage payment will be reduced, in this case to $567.79.

Your monthly payment would be $31.76 less per month, and the total repayment amount would be $11,434.15 less. This is the reason many people choose to pay points on their mortgages.

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